What to know as student loan forgiveness plan goes to Supreme Court

The nation’s highest court is to hear two cases Tuesday challenging the legality of President Biden’s student loan forgiveness plan, four months after an appellate court halted the relief program.

If the Biden administration is successful, more than 40 million people could have up to $20,000 of their individual federal student loan debt canceled. Before the courts hit the brakes on the program, more than half of eligible borrowers applied, with the Education Department approving 16 million applications.

But several lawsuits have sought to test whether the president has the authority to forgive the debt. If the challenges prevail, supporters of debt relief worry about what could happen to borrowers when loan repayments resume.

There are many moving parts to the lawsuits. Here’s a refresher.

Which lawsuits are challenging student loan forgiveness?

The first case, Biden v. Nebraska, was brought by Republican officials in Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. The original litigation alleges that the president is overstepping his authority with the forgiveness plan and threatening the revenue of state entities that profit from federal student loans.

A lower court dismissed the suit, accepting the Biden administration’s argument that the states lacked standing to sue. But the U.S. Court of Appeals for the 8th Circuit decided that the states had standing, at least in the case of Missouri, to bring a challenge on behalf of the Missouri Higher Education Loan Authority, a quasi-state entity that owns and services federal student loans.

The lawsuit asserts that under the relief plan, MOHELA, the Missouri entity that funds state scholarships, would improperly lose the revenue it receives from servicing Direct Loans – those made and owned by the federal government.

The other lawsuit, U.S. Department of Education v. Brown, was filed by the Job Creators Network Foundation, a conservative group, on behalf of student loan borrowers Alexander Taylor and Myra Brown. Under the Biden plan, Taylor is eligible for $10,000 of debt relief, according to the complaint. But he does not qualify for an additional $10,000 in forgiveness reserved for recipients of Pell Grants, a form of federal aid for low-income students.

Brown is ineligible for any forgiveness because her loans originated with the defunct Federal Family Education Loan (FFEL) program and are now held by private entities.

Until late September, commercial FFEL borrowers such as Brown could consolidate their debt into a Direct Loan to become eligible for forgiveness. But the Education Department reversed that policy to try to head off legal challenges.

A federal district judge declared the forgiveness program unlawful. The U.S. Court of Appeals for the 5th Circuit refused a request from the Education Department to put a hold on the ruling.

Why is the president canceling student debt?

The Biden administration says that the coronavirus pandemic has done financial harm to student loan borrowers and that canceling a portion of their debt is critical to avoid a surge in delinquencies and defaults.

Federal student loan payments have been on pause for the vast majority of borrowers since March 2020, when then-President Donald Trump declared a national emergency because of the public health crisis. And the Education Department expects that borrowers will struggle to manage their debt when payments resume. The agency analyzed historical data about borrowers who transitioned back to repayment after periods of forbearance, including postponement tied to natural disasters, and found that many fell behind on payments.

Does the president have the authority to cancel student debt?

The answer depends on whom you ask. The Biden administration insists that a 2003 law used by the Trump administration to pause student loan payments during the coronavirus pandemic also provides the authority to cancel education debt. The Justice Department released a 25-page memo in August that says the Higher Education Relief Opportunities for Students Act (HEROES Act) authorizes the education secretary “to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.”

But opponents argue that the scale of loan cancellation, at a cost of nearly a half-trillion dollars, requires congressional authorization because of the political and economic significance. They say lawmakers who passed the HEROES Act in response to the Sept. 11, 2001, attacks never intended for the statute to be used in the manner that the Biden administration has proposed.

How many people applied for forgiveness?

About 26 million people applied for debt relief before the program was shut down by the courts. The Education Department approved the applications of 16 million of those people but has not been able to proceed to canceling their debt.

Can you still apply for student loan forgiveness?

No. The Education Department stopped accepting applications in light of the injunctions halting the program. It has encouraged borrowers to sign up for updates at studentaid.gov.

How much would the forgiveness cost?

The nonpartisan Congressional Budget Office said the program would cost roughly $400 billion. If enacted, the forgiveness plan would immediately wipe out roughly $400 billion of assets on the federal government’s ledger. But because those assets had been expected to be repaid over a long time, the impact on federal budget deficits also would be stretched out.

White House officials have argued that the impact of reduced loan payments would amount to less than $300 billion over the next decade and have said the CBO’s score should be looked at over a 30-year window.

When will the Supreme Court rule?

The court will hand down a ruling before it adjourns, usually by the end of June. However, the justices are known to move a little faster on cases they take on an expedited basis. The court accepted these two cases on that basis.

When would student loan repayments resume?

Payments would resume 60 days after the Education Department was allowed to implement the debt relief program or the litigation was resolved. If no resolution occurs by June 30, payments will restart 60 days later, or on Sept. 1, according to the Education Department.

The Biden administration had encouraged borrowers to apply for debt relief by Nov. 15, when the pause was scheduled to end Dec. 31, in the hope that applications would be processed before a pause on student loan payments ended. That could have given the Education Department enough time to recalculate borrowers’ monthly payments on the basis of their lower new balances.